Kuaishou is 'ripe'; all hopes now rest on Kling!

$KUAISHOU-W.HK Q2 was lukewarm: headline results were in line, but core segments fell short (ads missed). On prints alone, that is unlikely to lift a multiple that has been under pressure. The swing factor is management's outlook for Kling's growth, especially amid intensifying video-model competition and a steady stream of rival launches.

Details:

1. Kling delivered high growth as guided, but sustainability needs validation

Kling revenue topped RMB 850 mn in Q2, up 30%+ QoQ, slightly above the ~RMB 840 mn guide given after Q1. With MiniMax H3 released in early Aug. and gaining traction, and big-tech stepping up multimodal investment, Kling's growth trajectory could face meaningful pressure. Management needs to provide key operating KPIs, the launch timing and feature advantages of the next-gen Kling model, and their medium-to-long-term strategic view.

Kling's spin-off progress is the biggest swing factor for Kuaishou's valuation. The latest move was a new standalone round announced in Jul.: $3 bn raised at an $18 bn post-money, with Kuaishou's stake down to 68%. Lead investors include CPE Yuanfeng and Guofang VC, alongside Tencent.

2、Traditional biz. remains under pressure

(1) Ads missed

Q2 ad revenue grew 4%, below the prior 6% expectation. The deceleration over the past three quarters reflects weaker ecosystem traffic — MAU still added a net 26 mn, but DAU, which correlates more with ads, fell by 1 mn net, so MAU gains look more like short-lived boosts from specific events or campaigns. It also reflects a soft consumption backdrop — e-comm has stopped disclosing GMV, and Q1 guidance suggested low growth; coupled with traffic subsidies skewed to e-comm, domestic ads likely grew flat to low single digits YoY.

Short dramas added incremental demand (Q2 short-drama ad spend up 100%), but from a small base and with competition. With tough comps in 2H, a near-term reacceleration looks unlikely.

(2) Live streaming kept sliding

Q2 live-streaming revenue fell 13.5%, still weighed by regulatory clean-ups and industry trends. As comps ease in 2H, declines could moderate.

(3) E-comm and others saw some extra lift

Other revenue ex-Kling was RMB 5.4 bn, up 7% YoY and above flat guidance. The company did not break out drivers; we suspect incremental sales tied to CBA broadcasting (signed CBA rights in Mar., embedded shopping links in CBA streams to sell sports merchandise) and online concerts launched in Apr. Please refer to management commentary on the call for confirmation.

3. Core profit missed

Core OP (GP minus three OpEx items, excl. other income) was RMB 2.9 bn, down 38% YoY and below consensus, mainly on a 35% surge in R&D tied to compute and headcount. Depreciation is booked in both COGS and R&D; total Q2 depreciation doubled YoY. The R&D portion jumped 3x+ YoY, likely reflecting large-model training capex amortization (compute equipment depreciation).

GPM was in line, flat QoQ and lower YoY, driven by Kling compute spend and a higher mix of IAA short dramas with lower margins. S&M and G&A tightened in Q2. Adj. net profit was RMB 3.9 bn (11% margin), down 30% YoY and in line.

4. Balancing capex vs. shareholder returns

Q2 capex was RMB 5.9 bn. The company guided full-year at RMB 26 bn; 1H totaled RMB 18 bn, consistent with front-loading compute purchases into 1H.

Shareholder returns: Q2 buybacks accelerated, with HKD 880 mn spent to repurchase 19.6 mn shares at an Avg. price of HKD 45. Per last quarter's guidance, 2026 shareholder returns will exceed 2025's HKD 5 bn, adding special dividends and buybacks on top of HKD 3 bn regular dividends, implying a >4% yield.

Kuaishou held RMB 67.8 bn in short-term net cash (cash + ST investments - ST borrowings). The company disclosed RMB 121.3 bn in available funds (adds LT time deposits, LT financial assets and restricted cash, and before deducting ST borrowings), giving room to exceed planned shareholder returns.

5. Detailed financials

Dolphin Research View

Q2 read-through was weak, mainly as core ads missed. Ads are the only legacy segment with a chance to stay positive; Q2 painted a platform struggling against a downbeat backdrop. Given that the late-May guide was still missed, Jun. likely trended worse. With tough comps ahead in 2H, ads will offer limited growth support.

That makes Kling even more critical as legacy biz. stalls this year. But Kling has its own blemishes: barriers in video models are lower than in base models; post the Aug. MiniMax H3 launch, user feedback suggests H3 is broadly in the same tier as Kling (T1), with slightly weaker quality but lower pricing. Meanwhile, Seedance remains in the T0 lead.

News also suggested a key Kling R&D backbone, Wang Xintao, recently left, reportedly joining Tencent. Tencent's HY4.0 official release in Q4 will include multimodal features. We are not optimistic about the impact of intensifying video-model competition on Kling in 2H.

We hope management shares more on Kling's operating progress on the call: not just listing/financing, but user paid renewal trends, ARR outlook, and the timing and core features of Kling 4.0.

From BIDU and Tencent's recent prints and capital allocation, the market's 'scorecard' for legacy internet pivoting to AI is now clearer: (1) show direct monetization from AI investment with ROI, and (2) legacy businesses must be resilient — they cannot be directly displaced by AI, and, importantly, should not be consistently disintermediated by the Douyin ecosystem.

As shown below, the steady erosion in Kuaishou's ecosystem traffic over the past two years has seeded today's growth headwinds in the core biz. Kuaishou tried to seek incremental growth via overseas expansion, but results were mediocre and have been scaled back.

Valuation: Kuaishou's mkt cap is $20.9 bn. Stripping Kling (using $18 bn post-money, 63% stake, then a 50% hold-co discount implies $5.7 bn), the legacy biz. is worth ~$15 bn, or ~8x 2026 post-tax OP. As with BIDU, that screens cheap on most cuts. But unless management turns more constructive on the call (focus: Kling and ads), without legacy earnings support, buyer interest may only show up around catalysts.

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Dolphin Research on 'Kuaishou' over the past year:

Earnings Season

May 27, 2026 call notes 'Kuaishou (Trans): Bullish on Kling; shareholder returns lifted to 4% this year'

May 27, 2026 quick take 'Kuaishou: Turning the tide, riding on Kling'

Mar. 26, 2026 hot take on sell-off 'Guide disappointment triggers plunge — is Kuaishou at $25 bn a buy?'

Mar. 25, 2026 call notes 'Kuaishou (Trans): Stepping up AI spend; flexible buybacks/dividends'

Mar. 25, 2026 quick take 'Kuaishou: A plunge to survive — can AI rebirth follow?'

Risk disclosure and disclaimer: Dolphin Research disclaimer and general disclosures